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Infection of immunocompetent adult rats with Borna disease virus (BDV) causes severe encephalitis and neural dysfunction. The expression of COX-2 and CGRP, genes previously shown to be implicated in CNS disease and peripheral inflammation, was dramatically upregulated in the cortical neurons of acutely BDV-infected rats. Neuronal COX-2 and CGRP upregulation was predominantly seen in brain areas where ED1-positive macrophages/microglia accumulated. In addition, COX-2 expression was strongly induced in brain endothelial cells and the number of COX-2 immunoreactive microglial cells was increased. In contrast, despite increased expression of viral antigens, neither COX-2 nor CGRP expression was altered in the CNS of BDV-infected rats treated with dexamethasone, or tolerant to BDV. Thus, increased CGRP and COX-2 expression in the BDV-infected brain is the result of the inflammatory response and likely to be involved in the pathogenesis of virus-induced encephalitis.